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Targobank, the last bank still willing to open bank accounts to Iranian investors, has followed the trend of all other Spanish banks and placed a blanket ban on any Iranian national who, for the most part, arrive in the country to buy Spanish property.

These ordinary investors, attracted by the comparatively low prices of Spanish property, are seeking to invest in the country and that that effect, are granted tourist visas (some apply and attain permanent residency) by the Spanish Consulate in Tehran, N.I.E. numbers by district Police Stations, property deeds by Notary Publics and “empadronamiento” certificates by Town Halls and yet are, irritatingly, snubbed by Spanish banks on the pretext that laws don’t allow them to do so.

So whilst sanctions against Iran have been tightened and these have been particularly aggressively enforced in the U.S. and Canada and by contagion, those countries with closer links to the superpower, still today no trace of where within those sanctions lies the prohibition of merely opening of a bank account for an Iranian traumatologist, pistachio exporter or car dealer who wishes to buy a property in Marbella, Madrid or Gran Canaria.

This has arguably created a view where anything remotely related to Iran is often viewed as toxic and problematic and thus leaves lawyers, property developers and real estate agents to all but “abandon” business with the numerous Iranians that wish to invest in Spain.

Alas, on closer inspection it appears there is no such blanket ban in Spain because there is no specific regulation by the Bank of Spain, the Ministry of Interior or that of Foreign Affairs to the effect of entitling banks to slam the door in the face of Iranian investors.

And yet when one meets with branch managers armed with the mandatory ‘Know Your Client’ detailed paperwork, excuses fly around: Iranians have been banned by the EU, bosses say it is not possible, the computer system blocks that particular nationality, our entity does not specialize on dealing with such nationals etc. etc. La Caixa, for instance, does request certain disclosures in respect to Iranians but they are not specifically banned from opening accounts…and yet they do so.

Sadly, it all boils down to Spanish financial institutions being terribly scared of retaliatory action by the U.S. Government and so prefer to drop certain foreign citizens as clients, even if they risk being reported to the Banco de España for arbitrarily, when not discriminatorily, refusing to open bank accounts to them.

Anne Verschaffel could be the first foreign resident of Spain to benefit from the confiscation of her repossessed home from the lender, pursuant to a populist decree approved by the Junta de Andalucia that considers totally unacceptable that people should risk being socially marginalized by reason of a loan foreclosure.

In the case of Anne, her aristocratic origins were no impediment for Jyske Bank to try to kick her out of her home; but they shouldn’t be either a reason to not qualify for the protection dispensed by legislation that according to many, reeks of communist ideology.

The preamble of this decree touches what seems a very sensitive issue: the situation of social emergency caused by human tragedies where the very right to life has been thwarted as a consequence of the evictions ordered on the habitual residence, obviously meaning the spate of suicides directly attributable to judicial evictions.

According to the norm, property is a key element in the planning of public services and infrastructure and as such, the non-occupation of dwellings presupposes an inefficient functioning of such elements that contravene the social purpose of the ownership of real estate. The measure then states that the most reprehensible form of accumulation of empty properties is that caused by banks and associated real estate companies which, according to the legislators, contravenes none other than the United Nations Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural Rights!

From a juridical point of view, the norm has some interesting aspects: for example, it establishes expropriations of the property use for a maximum of 3 years but then, it does not provide for what happens after the third year. It also gives the authorities investigative powers to keep track of properties that lie vacant and establishes 2 presumptions of a property being unoccupied: when it is not effectively used for accommodation purposes, during 6 consecutive months of each year, or where there is no water/electricity supply or consumption is existent or very limited.

To effectively achieve this, utilities´ companies are legally made “informants” of the Andalusian Government, in addition to Town Halls who are also required to grass up properties (and their owners) who have no one living in them with an “empadronamiento” (official record of residents in a given locality).

Finally, fines of up to €9,000 are readily available for bank and similar institutions that breach the provision of this norm.

The Spanish Supreme Court has ruled that floor clauses can be deemed void where the bank failed to advise customers with clarity and transparency, establishing conversely that would be licit where borrowers were fully and adequately informed.

The high court analysed the clauses used by the bank BBVA and found them to be in breach of consumer regulations due to the following reasons:

There is insufficient clear information that such clauses are material to the object of the contract.

They were inserted together with “ceiling clauses”, which caps the loan interest rate, as if offered in exchange for the bank’s concession.

The bank failed to offer examples on specific instances of interest rate behaviour.

There is a lack of clear and comprehensible information in respect of cost comparisons with other loans offered by the lender -where there are others- or a warning that the borrower is not being offered others.

In the case of BBVA, the clause is embedded within significant data that disguises it and has the effect of diluting the attention of the consumer.

The Supreme Court has also found these clauses to have a perverse effect: they created the false appearance that the lower the Euribor, the lower the mortgage repayment (it was thus just an amiable facade).

Customers in the above scenario are now in a position to succesfully challenge such clauses although, as was made clear by the Supreme Court, the ruling does not have a retrospective effect.

Do you have one of such clauses in your mortgage loan contract? Have you calculated how much you could save by having it removed?

A recent ruling by the European Court of Justice (ECJ) has given Spanish Courts dealing with loan foreclosures the right to interpret contracts and their clauses, but has not declare eviction laws completely illegal, as has been widely publicized. The Q & A below summarize the ruling and its effects on borrowers:

Why did the ECJ get involved in this matter? Spanish foreclosure procedural laws are deemed, among legal professionals, as a one-way street. This means that if your bank forecloses you either pay up the whole sum owed or you instigate criminal proceedings to prove that the loan was fraudulent. There are no other possible defenses to stop ultimate eviction under these declaratory proceedings

Is my mortgage loan illegal by virtue of this ruling? No but now Spanish Court have the powers to delay or freeze the eviction of home buyers, who have fallen behind on their mortgage payments, whilst they assess the fairness of certain terms and conditions within the loan contract that, according to the ruling, create “significant imbalance” to the detriment of the consumer.

Which terms were referred to in the ruling? The ECJ criticized the contract submitted to them on 2 grounds: it allowed the bank to take away a home after just one failure to pay an instalment, and provided for a default interest rate of 18.75 per cent. According to the ECJ, Spanish Courts dealing with foreclosures are now able to determine the validity of these clauses.

So how does this affect my existing mortgage loan? The ECJ has opened the door for Spanish Courts to annul mortgage loan clauses that are objectively unfair, such as those quoted above. However, it does not give the borrower the right to stop paying the loan, avoid the debt altogether or stay in the property for good without keeping up the repayments. As journalist Mike Shedlock wrote in respect to Mr. Aziz, the claimant whose loan was scrutinized by the ECJ, “I suspect he can afford to pay 0% and nothing on principal”…which gives us an idea of the where the real problem lies!

A couple of weeks ago, I received a telephone enquiry relating to an imminent bank repossession where the soon-to-be ex property owner, seemingly knowing the ins and outs of rental law, requested a quote to draw up a rental agreement. Out of curiosity I asked him if he was going to submit it to the Courts to stop the eviction, and unsurprisingly, he confirmed my question.

His plan was pretty simple: he as the landlord would sign a backdated tenancy agreement with a friend, for a smallish rent (around €200, inclusive of utilities!), with a view to not be considered an “unlawful occupant” and therefore, avoid eviction on grounds that Spanish laws do actually dispense protection to tenants.

What this enquirer forgot is that common sense applies in Spain too and therefore, in the absence of proof of a history of payments to him by his friend, the Courts would deem the contract bogus and deny its existence and therefore, validity. Moreover, I had to quickly advise him that in fact, the Spanish Criminal Code in its article 257 states that “any person who in detriment of his creditors, carries out any act of valuable disposition or creates obligations that delay, hinder or impede the efficacy of an embargo, executive procedure or reposession, whether judicial, extrajudicial or administrative, initiated or of foreseable initiation, will serve a prison term of between 1 and 4 years.

The Courts uphold the principle of common sense when judging the validity of rental agreements submitted by tenants; let us have a quick look at these 2 examples:

Appeal Court in Toledo: in this case, the rental agreement was deemed a simulation and thus did not express the true intent between the parties because, according to the presiding Judges, it was signed between brothers, the monthly rental was €400 on a 2,000 m2 warehouse, there was no visible activity in it (a big lock on the door is mentioned on a photographic report) and there were only private receipts to prove the rental payments. An accumulation of evidence that, in the eyes of the Court, was consistent with that of a simulated contract and thus, the repossessing bank was granted possession.

Appeal Court in Madrid: Judges in the capital city found the rental contract to be fully valid, as there is a presumption of validity of juridical contracts that needs to be destroyed by the bank, and this has not been achieved as the latter entity since only invoked that the contracts were subsequent to the mortgage loan. And the Spanish Supreme Court is clear on this point: “…not even a bank foreclosure extinguishes tenancy agreements agreed to after signing the mortgage loan, if there is no sufficient proof that there was collusion or fraud.”

It is only a few days ago when we read a story of an ailing 80-year-old diagnosed with Alzheimer and dementia, who had been sold €18,000 worth of… worthless financial products from CAM bank. The gentleman in particular had an officially recognized 80% disability, impaired vision and a history of strokes, and yet, he was persuaded by his branch manager into buying CAM shares for €9,000 and a further €9,000 on deposit, until year…3000!

This example of disgraceful behaviour, far from being an isolated case, adds on to a long list of what we could call “bankers´ most despicable actions” (we would completely miss the point if we thought that these are not man-made) and illustrates the utter disrespect and greed of certain individuals working for some banks.

So listed below are Top 7 Banks’ questionable at best, despicable at worst practices I have come across both in the exercise of the legal profession, and exemplifies the declining ethical standards within the industry.

Equity Release: a scam that was operated by a number of Scandinavian and British banks where pensioners were asked to gamble away their lifetime savings on two main pretexts: that by registering a mortgage on their property, they could eliminate Inheritance Taxes for their children, legally, and that by investing the loan obtained from the mortgage they would obtain an additional income to their limited pension. A few criminal ongoing court actions, and an avalanche of soon to come civil suits will determine how ethical it was for RothschildBank offer a 90-year old a 90% loan on her property…

Clip or Swap clauses on mortgages: financial products wrongly sold to mortgage-loan customers as insurance against increasing interest rates. The bona-fide insurance policy was in reality a complex derivative instrument. Most Spanish banks indulged in this awful practice and court cases are being resolved in favour of customers. Bankinter, Popular Bank and a few other culprits have lost 523 Court cases versus 90 ruled in their favour…

Bad-advice provided by Deutsche Bank to its customers when advising them that Lehman Brothers and some Icelandic banks, which ultimately went bust, were, nevertheless, the investment of choice. Court number 57 in Madrid is currently dealing with the matter.

Deceitful advice given to long-standing clients by La Caixa, CAM, BBVA and many other banks to sign up “preferential shares”,when they thought they were depositing their savings on a fixed-deposit. Whereas one would think that younger, dynamic and financial-savvy investors would take on these products, this meeting held by very upset customers seems to suggest otherwise.

Abusive use of the extra-judicial foreclosures by some banks. This repossession mechanism is generally (and inadvertently) agreed to by the borrower when signing the mortgage loan deed, is conducted by Notary Publics and can lead the bank keeping a property for €1. An association is fighting to expose this practice.

And lastly, a shocking photographic report of Jyske Bank’s not-so-exquisite treatment of an evicted property owner, his belongings and the property itself, following a bizarre dispute lasting 18 years. The Gibraltar-based bank managed to regain possession of an offshore-company-owned property although not ownership, that was retained by the ultimate owner (our client), as confirmed by a number of quirky court rulings that nevertheless allowed Jyske to put their hands on this property with one sole purpose: destroy as much as they could!

This supremacist statement embedded in Nordea’s INTERNATIONAL PRIVATE BANKING in LUXEMBOURG prospectus is not only an insult to Nordic people, but also probably the last straw for many close to losing everything (everything as in the Oxford English Dictionary), to the bank in question. Not even the Nigerian scam has wreaked so much havoc on one single individual as has the Nordic “in-house specialist and experienced portfolio managers”.

But the infamy of this statement and the severity of the insult it projects over the victims of the Nordea Bank Equity Release could be insignificant compared with what could happen if the Spanish authorities (Spanish Anticorruption Prosecutor and the National Tax Office) picks up on one aspect of the programme that the US Justice Department and Internal Revenue Service (IRS), in a case brought against the promoters of a similar scheme, identified as being

“conspiracy to defraud the United States and to commit wire fraud, conspiracy to commit money laundering and tax evasion, by promoting fraudulent scheme…additionally the Hirmers attempted to strip the equity out of one of their homes by granting a bogus mortgage to a Panamanian nominee entity they controlled…the use of abusive trust schemes and fraudulent debt elimination tactics intended to conceal income from the IRS isn’t tax planning; it’s criminal activity. There is no secret formula that can eliminate a person’s tax obligations…today’s verdict reinforces our commitment to every American taxpayer that we will identify and prosecute those who promote illegal financial transactions designed to evade the payment of taxes.”

And so, if everything else fails, it is then crucial to adopt what I call the “controlled foreclosure mood”, which is when you know you are being kicked out but you remain calm and think strategically. At the end of the day, you know that you have, at least, anything between 12 and 24 months to find new accommodation and, until the eviction order gets effectively carried out, there is plenty of time to weigh different options. I have listed pros and cons of this situation:

For

You stop paying the mortgage, the community fees, the Council Tax and any other payments not related to your essential supplies, and actually start saving! Whereas the above outgoings can run up to €1,500/month on, say, a 2-bed apartment, the same apartment you can rent for €500/month.

You have the answer to the endless dilemma of trying to save a property that is in substantial negative equity vs. walking away from it. You don’t have a choice and thus, it brings a sense of closure to an unsettling predicament.

You have time to look for rental accommodation, without the rush of an impending eviction order.

You benefit from newly enacted laws that would preclude the lender, if you still end up owing them after repossession, from seizing anything under 1,5 times the minimum wage (€641), or €961, plus an additional €200 per dependent family member earning less than the minimum wage. Also, the property will not be auctioned for less than 60% of the valuation.

You know that, whatever happens in the future, it is quite likely that you are en route to get rid of the dreaded negative-equity because banks’ lawyers, who tend to be posted far away from where you are and who are pretty laid-back (i.e., CAM lawyers are in Alicante, Sabadell-Atlantico in Barcelona etc.), are not going to send private investigators to find out exactly where you derive your income from, as an ex would! Their business is banking, not debt-collection.

It is quite possible that the next government, hopefully the PP (Partido Popular), will improve dramatically the economic state of the country and implement effective rules to ensure that the so-called “right to a second opportunity” is carried forward.

Against

The bank can repossess the property for less than it’s owed on it, which would entitle them to pursue you for the balance.

You need to disappear for a while from land registries, car registries, etc., if you know what I mean, whether you have assets in Spain or abroad (particularly in the EU, cannot see Caja Extremadura chasing after a beach front apartment in Thailand but conversely, can see Banco de Santander targeting a 3-bed detached house in Woodford Green).

You need to be careful with having bank account in your name, as occasionally the bank could request from the court the issue of a “sweeping” information order, on all banks, to know if you have any cash in them. This means that you need to operate through a company or a friend/family member.

You may feel an element of stigma, but, hey, nothing wrong with that, you now live in stigma land…this is Spain!

In my opinion, it is vital to view this situation as a business that has gone wrong and little more, working around the problem as it comes to you but more importantly, not allowing it to engulf your being or weaken your spirit till you give up.

I have an American client, Ray, who happens to be a CAM Bank client. Several months ago, Ray got caught up by this bank’s disastrous decision-making processes and stuck in what seems an unresolvable legal quagmire.

Ray bought from a developer off-plan, back in 2005. In 2008 the properties were finished and licensed but, because the developer was running into problems, there were court cases being filed, and potentially embargoes being registered against the units, including his. So to protect him, on our advice he chose to complete on the property assuming the existing mortgage, without qualifying with the CAM as the application had not been submitted.

On a property valued at €900,000, he had paid more than half of it, during the course of the construction.

The situation was that he owned the property but the mortgage was in the developer’s name, although he kept his payments up to date. Twelve months ago, his loan fell behind by €300 during 3 days, and the CAM, because it coincided in time that they had just foreclosed on the loans on the other unsold units, seized the opportunity and did the same with his. Two days after this he had €20k in his account to cover several installments, but CAM refused point blank to reinstate. No other bank will lend him now, even though is not in a bad creditors list, because of this unusual situation.

This is an example that shows that some banks choose to be where they are: they are just bad banks with bad people running them, no more, and the CAM, the fourth largest savings bank in Spain, epitomises this.

Ray is not alone, as there seems to be a large number of clients who have had to deal with branch managers lacking the minimum common sense you expect from someone in their position. If you are one of those affected, we would love to here you story.

Today on Talk Radio Europe

For those of you interested, I will be today around 4.00 PM on the Life At Five with Allan Tee Show on Talk Radio Europe, to discuss this matter.

My client has had a narrow escape: having been notified in early March by the courts that his property was to be auctioned by Danske Bank, at 11:00h of the 8th of June 2011, we managed to obtain from the same court a ruling suspending the auctionexactly…24 hours before (just like that one last call from the Alabama Governor…)

And prior to this, on the 27th of May 2011, that is, just a few days before the auction, we are advised, through the courts (Document in PDF), that, unbeknownst to him, my client did indeed have €126,946.64 with Danske Bank, in some account in Luxembourg, which is what he had been wiring to them, over the years, to attempt to placate them and avoid being kicked out of his retirement home bought with his life-savings. One can only imagine the topnotch service Danske bank provided my client once they had abandoned Spain, not before trying to repossess a few homes in its wake. Danske Bank had all but forgotten about this money until the very end, and they have the cheek to say that the debtor had paid up this sum when, as a matter of fact, it had been blocked for years.

So if it was not enough stress, we added that extra bit to it by, unwillingly, choosing the latest of the possible dates (other than tomorrow) to set aside the sale at public auction instigated by Danske Bank against a 73 year-old retired mariner victim of an equity-release, who had been conned into believing that, by going with the biggest Bank in Denmark and contracting what is effectively a tax-evading financial product on his unencumbered retirement home, he would have a monthly payment coming his way, pretty much all the inheritance tax his daughters would be hit with waived or wiped out and all of it, without risking anything (apart from his home, his health and, potentially, his two beautiful daughters’ freedom, as they would have been eligible for prison sentences to be served at Alhaurin prison, 10 minutes’ drive from the foreclosed home, had they followed Danske Bank’s careful tax planning).